From Venezuela to Iran, on the supply side, and from France to India, on the demand side, the market for oil has once again been invaded by politicians and geopolitical strategists. While demanding of the world ‘fair trade’ practices, US President Donald Trump has resorted to the ultimate unfair trade practice of imposing unilateral sanctions on the oil exports of Venezuela and Iran. Trump’s oil sanctions are not just a hit on unfriendly exporters, but also on friendly importers — like India.
While the share of oil in India’s total energy consumption has been declining, with that of gas and renewables rising, the fact is that the share of imports in India’s oil consumption has steeply increased in the past two decades, now at over 80% of consumption. This is expected to continue to increase to over 90%. Making an elaborate presentation on the global outlook for energy and analysing trends in India’s energy demand, recently at a think tank in New Delhi, the chief economist of a global oil major made no reference at all to potential geopolitical risks that could once again disrupt the market for oil.
Economists who don’t understand geopolitics cannot say much about the market risks for oil. This fairly commonplace observation has to be reiterated, because so much of the economic modelling and forecasting that still goes on, shies away from a discussion of how power politics continue to distort the market for oil and the prospects for development, especially among the world’s poorer economies.
India sources over two-thirds of its crude oil requirements from West Asia, mainly Iraq, Saudi Arabia and Iran. While sourcing from Venezuela has declined, that from Iran had increased in the past three years. The US, too, has emerged as a supplier, with around 3% share of India’s oil imports. There are two dimensions to India’s oil imports from Iran: economic and geopolitical. The economic dimension is price. Iranian oil has come cheaper and, more recently, has been paid for through barter arrangements.
Building Bridges, Not Walls The geopolitical dimension is the access Iran offers India, both to Afghanistan and Central Asia. More recently, India has sought to maintain good relations with both the Shia (Iraq and Iran) and Sunni (Saudi Arabia and the United Arab Emirates) nations in West Asia, given the Shia-Sunni dimension to global and domestic Muslim politics. The US reference to Iran as a nation exporting terrorists rings hollow, given Washington’s equivocation on Pakistan. Every country has its own economic and geopolitical interests, and these would have to shape policy choices. India has, therefore, no option but to try and seek accommodation with both the US and Iran.
Gestures aimed at keeping the US happy would have to go hand in hand with gestures to reassure Iran aimed at maintaining a good relationship. For India, neither the US nor Iran are hostile nations. But if either resorts to measures that harm India, it would have no option but to reconsider relationships, to the extent possible. While GoI has to deal with the geopolitics of oil, the ruling BJP is also having to deal with the domestic politics of oil. Congress and the Left Front have demanded that the Narendra Modi administration should not kowtow to the US and must reject US sanctions.
Unfortunately, for Congress, it is on a weak wicket on this issue. As a source of supply of oil, Iran moved up from seventh position in 2013 to third in 2018 among India’s suppliers. Moreover, the UPA government, too, had to cut imports from Iran from time to time, during its decade in office, responding to US pressure. So, the Congress spokesman was recently making much of a muchness issuing dire warnings to the Modi government on how to conduct its relations with the US and Iran.
The fact is that during the last three years, GoI has stepped up its import of crude oil from Iran, with a 36.7% increase, making Iran the third-largest source of crude oil imports after Saudi Arabia and Iraq.
Slippery as Oil The Left Front has, of course, been more consistent in its stance on Iranian oil imports. But that is a function both of its anti-US ideology and the appeal to Muslim votes. Each time the Left berated Prime Minister Manmohan Singh on his policies towards the US and Iran, he would not only remind the Left that he knew well what was in India’s national interest but would also chastise them for ‘communalising foreign policy’. But then, oil markets have no option but to navigate the slippery ground of politics and geopolitics.
(The writer is distinguished fellow, Institute for Defence Studies & Analyses, New Delhi)
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